Thursday, December 22, 2005

Fat vs. Skinny Branches

No sooner had I posted yesterday's blog on the economics of hybrid cars than I ran across an article on an entirely new hybrid technology, developed by no less than the Environmental Protection Agency. Hybrids are a long way from being a mature technology, so it shouldn't bother anyone that this entirely mechanical system might go into production to compete with the hybrid-electrics currently on the market. The only risk I see in this development resembles that of the Betamax vs. VHS video format wars of the 1980s: the best technology might not win out.

When comparing different technologies, it's useful to think about the further options they create. The whole advanced energy technology field looks like a giant decision tree, loaded with branches, many with multiple sub-branches. An advance at one level of the tree can create new branches or terminate old ones. Nor are all branches equally "thick", in the sense of how many other branches they affect. Viewed this way, the hybrid-electric technology behind the Toyota Prius, Ford Escape, et al constitutes a particularly thick branch, and that makes the technology pretty robust.

For example, the power electronics and battery systems developed for this type of hybrid will also benefit work on fuel cell cars, and vice versa. Battery advances will not only improve the performance of today's hybrid models, but will also facilitate bringing to market "plug-in" hybrids with substantial electric-only range. For that matter, the growing real-world experience with hybrids would be applicable to a new generation of all-electric cars, if a cost or performance breakthrough in batteries occurs. So you can see how these various branches of hybrids, batteries, and fuel cells twist around each other and support each other. In other words, hybrid-electrics represent the thin end of a wedge that could allow electricity to substitute directly for gasoline, an option we don't have today.

By comparison, the hydraulic hybrid vehicle system being developed by the EPA represents a lone, skinny branch. It would have to rely on an initial cost advantage to capture market share, either from hybrid-electrics or from conventional cars. Now, don't get me wrong; the fuel economy improvements touted for this technology are substantial and would have a real impact on US oil demand if widely adopted. However, when you compare the two technologies in the way I suggested above, hydraulic hybridization starts to look like a dead end or potential "orphan" in the future. That could result in a consumer backlash against all hybrids and other new technology cars.

Furthermore, if the adoption of mechanical hybrids ended up slowing down or aborting the broader trend of electrification of cars, the short-term fuel economy gains would not be worth the loss of long-term, non-hydrocarbon transportation energy options. And I'm not sure you can rely on the market to sort this out, since the playing field isn't exactly level in this case. Someone may actually have to make a tough call, based on a careful assessment of the complex issues involved.

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